Budget 2025: States may get special aid despite capex slip

Union Budget: The Centre is expected to release the next instalment of special assistance to states even if they have not met capital expenditure targets. In July 2024, the Centre increased the budgetary allocation under the programme to ₹1.5 lakh crore, a significant rise from ₹1.05 lakh crore in the previous fiscal.

A substantial portion of this allocation to the states was conditional, tied to their respective capex performances. However, due to the general elections and assembly polls in a few states, their combined capital expenditure declined nearly 7% year-on-year in the April to November period.

During a pre-budget meeting with finance minister Nirmala Sitharaman, state finance ministers requested a relaxation in the condition for availing special assistance loans.


This relaxation would enable states to receive additional assistance, providing a much-needed boost to their spending power in the last quarter of the current fiscal.

"The condition attached to states' capex was relaxed, as very few states were eligible to receive the remaining instalments," a senior official told ET.

The finance ministry would clear projects and proposals on a fast-track basis, provided states have fulfilled other reforms.

Under the scheme, the Centre extends 50-year loans to states at zero interest to boost their durable assets creation capacity.


This year, out of the total allocation, ₹55,000 crore is an unconditional loan, while ₹95,000 crore is tied to various conditions including industrial growth, land reforms, and capex growth by states. A significant portion of the conditional loan, ₹25,000 crore, is linked to capex achievement by states.

The condition stipulates that states will receive 50% of their corresponding share only if they report a capex growth of 10% or more in FY24 and the remaining 50% if they achieve 10% capex growth in the current fiscal year. However, this condition has been relaxed for states that have utilised earlier instalments and for disaster-hit states.

As of September 30, projects worth ₹50,069 crore had been approved, but the approval amount has now increased to ₹88,000 crore. Sitharaman reviewed the capex in October and instructed the expenditure department to coordinate with states to speed up the submission and approval of project proposals.

The officials flagged the need to relax the conditions to meet the target. Last year, the Centre had allocated ₹1.30 lakh crore for FY24, but in the interim Budget, it slashed the outlay for the capex facility by 19% to ₹1.05 lakh crore. Earlier, ET reported the government expects a reduction of 15-20% in the special assistance capex loan to states, as spending was dragged down by general elections in the first half of the current fiscal.